Business interruption insurance (BI) is designed to cover your business for loss of income as a result of not being able to continue trading following an insured event such as a fire, storm, flood, or major theft which affects your ability to trade.
In the event of such an unfortunate occurrence, it is important to consider how you would keep your business running in the interim period. How would you pay the bills, pay your staff and maintain relationships with clients and suppliers?
Cover is typically incorporated into a wider policy, such as a business combined liabilities insurance policy.
While Property Insurance will cover the reinstatement of your buildings, machinery and contents, it is BI that will help to minimise the financial impact of a disaster across the whole business. Therefore, it is important to get it right from the outset.
There are three key points to consider for a BI policy:
The policies are usually arranged on either a gross profit basis or on a gross revenue basis, depending on the trade.
Gross profit basis is mainly used for manufacturing and retail.
Gross revenue is usually used to cover services and professional businesses.
Cover is usually limited to interruption following insured damage that has occurred at premises either owned or occupied by the insured.
Policy extensions can be added that amend premises limitation to include interruption caused by damage at premises used by the insured’s neighbours, customers, suppliers, utility providers and other third parties.
BI policies can also be extended to cover losses caused by events including disease outbreaks and bomb scares that affected the insured’s premises.
The indemnity period is defined as ‘the period beginning with the occurrence and ending not later than the maximum indemnity period thereafter, during which time the business is affected by the interruption occasioned by the damage’. This is the limited period for which insurers will pay for any losses incurred.
When deciding the maximum indemnity period, you’ll need to take into account the activities of the business:
Typically, this form of business interruption cover is suitable for office-based businesses or contractors whose income is generated from work away from their own premises. As such, an interruption from a fire at their own office, would not significantly impact their income or profit.
For these types of businesses, cover may be required for additional costs incurred to minimise the interruption to trading, including renting temporary office space or additional staffing costs.
Gross profit is a form of business interruption insurance that covers lost profit if an insurable event occurs and is typically insured by companies who undertake business activities at their own premises, key examples being manufacturers and retailers.
The amount of loss is calculated based on a pre-defined formula and relies on historical rates of turnover to determine the amount of money a business is losing.
Policy coverage extends throughout the period of time the insured rebuilds or repairs its business property and covers losses the business experiences while not being able to function as normal.
There are other forms of cover available which are tailored to the specific needs of different types of businesses, including:
Although not available under all BI policies, a number of extensions to cover can be available to businesses who may be affected by damage to a third-party premises.
Common extensions to cover can include losses incurred from:
The cost of BI can vary depending on various factors related to your business, theses can include:
Businesses, regardless of size, should regularly review their plans and consider changes to their business as well as other external factors that could influence their operation following a period of interruption.
Continuity planning is important because:
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Protects against claims of alleged negligence in your professional services, advice and designs.
Protects against claims of injury to third-parties or damage to a third-party's property.
A legal requirement for anyone employing staff. Protects your business in-case an employee is injured at work.
Covers your business in the event of a malicious attack on your computer systems and data.